IMF Working Papers

Real Equilibrium Interest Rates in the Euro Area

By Robert C. M. Beyer, Luis Brandão-Marques

June 20, 2025

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Robert C. M. Beyer, and Luis Brandão-Marques. "Real Equilibrium Interest Rates in the Euro Area", IMF Working Papers 2025, 123 (2025), accessed July 20, 2025, https://doi.org/10.5089/9798229013086.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Updated estimates of real equilibrium interest rates in the euro area, derived from eight prominent methodologies proposed in the academic literature, deliver a wide range of estimates, partly because they vary in time horizon and economic complexity. By the end of 2024, shorter-term equilibrium rates mostly exceeded longer-term rates, with foreign spillovers contributing positively to euro area equilibrium rates. Given the wide range of estimates and their high uncertainty, a judgment-based assessment should be based on three criteria and consider their conceptual fit, robustness, and alignment with other economic indicators. Even then, the uncertainty surrounding the estimates represents a specific form of model uncertainty that necessitates the formulation of robust conclusions and policy recommendations. Our results show that ECB policy rates are broadly aligned with short-run efficient rates and suggest that monetary policy remained restrictive at the end of 2024.

Subject: Central bank policy rate, Dynamic stochastic general equilibrium models, Econometric analysis, Financial services, Inflation, Interest rate floor, Monetary policy, Prices, Real interest rates

Keywords: Central bank policy rate, Dynamic stochastic general equilibrium models, ECB policy rate, Equilibrium Interest Rates, Equilibrium rate, Euro Area, Foreign Spillovers, Global, Inflation, Interest rate floor, Longer-term rate, Monetary Stance, Open-economy model, Real interest rates

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